Correlation Between Amgen and Tandem Diabetes

Can any of the company-specific risk be diversified away by investing in both Amgen and Tandem Diabetes at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Amgen and Tandem Diabetes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Amgen Inc and Tandem Diabetes Care, you can compare the effects of market volatilities on Amgen and Tandem Diabetes and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Amgen with a short position of Tandem Diabetes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amgen and Tandem Diabetes.

Diversification Opportunities for Amgen and Tandem Diabetes

0.69

Correlation Coefficient

Amgen  Tandem Diabetes

Poor diversification

The 3 months correlation between Amgen and Tandem is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Amgen Inc and Tandem Diabetes Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandem Diabetes Care and Amgen is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Amgen Inc are associated (or correlated) with Tandem Diabetes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandem Diabetes Care has no effect on the direction of Amgen i.e., Amgen and Tandem Diabetes go up and down completely randomly.

Pair Corralation between Amgen and Tandem Diabetes

Given the investment horizon of 90 days Amgen is expected to generate 1.5 times less return on investment than Tandem Diabetes. But when comparing it to its historical volatility, Amgen Inc is 2.83 times less risky than Tandem Diabetes. It trades about 0.02 of its potential returns per unit of risk. Tandem Diabetes Care is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,213  in Tandem Diabetes Care on September 15, 2024 and sell it today you would lose (782.00) from holding Tandem Diabetes Care or give up 18.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Amgen Inc  vs.  Tandem Diabetes Care

Amgen Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amgen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Tandem Diabetes Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tandem Diabetes Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Amgen and Tandem Diabetes

The main advantage of trading using opposite Amgen and Tandem Diabetes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amgen position performs unexpectedly, Tandem Diabetes can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Tandem Diabetes will offset losses from the drop in Tandem Diabetes' long position.

The idea behind Amgen Inc and Tandem Diabetes Care pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.